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Budget 2014-2015

BUDGET

PLANFebruary 2014

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Budget 2014-2015

Budget Plan

Legal deposit Bibliothque et Archives nationales du Qubec

February 2014ISBN 978-2-551-25505-4 (Print)

ISBN 978-2-550-69981-1 (PDF)

Gouvernement du Qubec, 2014

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X BUDGET PLAN

Section A

The Governments Economic and Fiscal Policy Directions

Section BEconomic PolicyPutting Jobs First

Section CQubec economy:recent developments and outlook for 2014 and 2015

Section DThe Governments Financial Framework

Section EThe Qubec Governments Debt

Section FUpdate on Federal Transfers

Section GThe Fight Against Tax Evasion and Unreported Work

Section HReport on the Application of the Legislation Respectinga Balanced Budget and the Generations Fund

Section IAdditional Information on the Fiscal Measures

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A.1

SectionAA THE GOVERNMENTS ECONOMIC AND

FISCAL POLICY DIRECTIONS

Highlights ............................................................................................. A.3Introduction .......................................................................................... A.51. The governments fiscal policy directions .................................. A.7

Economic situation .............................................................................. A.71.1 A still-fragile international economy ....................................... A.71.1.1 Change in Qubecs economic situation ............................... A.81.1.2 Consistent rise in the standard of living in Qubec ............. A.101.1.3

Budgetary situation ............................................................................ A.151.2 Overview .............................................................................. A.151.2.1 Responsible management of spending in1.2.2

2012-2013 ............................................................................ A.18Adjustments to the financial framework ............................... A.201.2.3

The governments financial framework ............................................. A.251.3 Spending growth ............................................................................... A.291.4

Program spending ................................................................ A.291.4.1 Consolidated expenditure .................................................... A.311.4.2

Maintenance of the debt reduction objectives ................................... A.351.52. A plan for responsible management of public spending ..........A.37

Taking action toward responsible remuneration ............................... A.382.1 The governments remuneration expenditures .................... A.392.1.1 Remuneration of physicians ................................................ A.412.1.2

Improving the quality and efficiency of public services ..................... A.432.2 Patient-based funding in the health sector .......................... A.442.2.1 Greater efficiency in school boards ..................................... A.492.2.2 An effort by public bodies .................................................... A.512.2.3 Assessment within five years of the value of public2.2.4

services delivered by government departments andbodies .................................................................................. A.52

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A.2

Better presentation of budgetary information ....................... A.532.2.5 Ensuring funding for public services ................................................. A.542.3

Higher parental contribution for childcare services .............. A.552.3.1 Review education cost-sharing for foreign university2.3.2

students ................................................................................ A.59

Fighting tax evasion .......................................................................... A.612.4APPENDIX 1: Financial framework by sector ............................... A.63APPENDIX 2: Omnibus bill ............................................................ A.65

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The Governments Economic

and Fiscal Policy Directions A.3

ASECTION

HIGHLIGHTS

Budget 2014-2015 confirms a return to fiscal balance in 2015-2016. It takes intoaccount all new economic and financial data obtained since the November 2013 Update on Qubecs Economic and Financial Situation.

This budget presents the policy directions necessary to restore fiscal balance andreduce the debt, as well as the actions that will be taken to promote job creationand economic growth in Qubec.

Return to fiscal balance in 2015-2016

Budget 2014-2015 confirms the budgetary objectives set in the November Update,namely:

anticipated deficits of $2.5 billion in 2013-2014 and $1.75 billion in 2014-2015;

a balanced budget in 2015-2016 by pursuing rigorous expenditure control;

avoidance of recourse to tax increases;

full offset of the impact of additional deficits on the debt by making additionaldeposits in the Generations Fund;

implementation of economic priorities in relation to Qubecs Economic PolicyPutting Jobs First.

CHART A.1

Budgetary balance(1)from 2012-2013 to 2015-2016 and additional deposits inthe Generations Fund starting in 2016-2017(millions of dollars)

(1) Budgetary balance within the meaning of the Balanced Budget Act.

1 600

2 500

1 750

0

425

2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 to2025-2026

Additional annualdeposits in the

Generations Fund

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Budget 2014-2015A.4 Budget Plan

Rigorous expenditure control

Program spending increased by 1.2% in 2012-2013, the lowest increase in15 years.

For 2013-2014, the level of program spending is being held at the level anticipated

in March 2013, that is, $63 825 million.For 2014-2015, growth in program spending stands at 2.0%.

For 2014-2015 to 2016-2017, the average rate of growth in program spending andconsolidated expenditure is set at 2.0% and 2.1%, respectively.

Debt reduction

The government is maintaining its debt reduction objectives. As indicated in theNovember 2013 Update, to ensure the attainment of those objectives, deposits in

the Generations Fund will be maintained from 2013-2014 to 2015-2016 and willincrease starting in 2016-2017.

The additional deposits will fully offset the impact on the debt of the deficitsstemming from the two-year postponement of a return to fiscal balance.

Qubecs economic policy: new initiatives to supportinvestment and employment

The governments economic vision is focused, in particular, on private investmentas the key to future growth. In October 2013, the government released QubecsEconomic Policy Putting Jobs First, an integrated approach to creating jobs andsupporting investment that will drive Qubecs prosperity.

To pursue the efforts already deployed, Budget 2014-2015 includes initiatives to, inparticular:

ensure the development of Qubecs mining and oil potential so that allQuebecers benefit by giving Ressources Qubec strong mandates and cleardirections that will enable it to move forward and contribute to Qubecseconomic growth;

increase business financing and support business growth by putting in placethe conditions needed to ensure long-term viability of the financing sourcesavailable to businesses as well as initiatives enabling them to invest and grow;

continue supporting municipalities and the regions through a renewedQubec-municipalities partnership, specific initiatives for Montral and QubecCity, and additional assistance for the tourism accommodation industryoutside these two major centres.

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INTRODUCTION

This section of Budget 2014-2015 provides an overview of the governments fiscalpolicy directions.1It presents:

recent developments in the economic and budgetary situation as well as themain changes since November 2013;

the directions for attaining fiscal balance in 2015-2016;

the governments five-year financial framework;

a plan for responsible management of public spending.

1 Unless otherwise indicated, this document hinges on data available as of February 12, 2014. Inaddition, throughout this section, the budgetary data for 2013-2014 and subsequent years areforecasts.

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1. THE GOVERNMENTS FISCALPOLICY DIRECTIONS

This budget confirms the government actions announced in the November 2013Update to attain fiscal balance in 2015-2016 and ensure Qubecs economic

development.

Economic situation1.1

A still-fragile international economy1.1.1

In the last few years, economic activity has reflected the sluggish global recoverysince the recession. After rebounding in 2010 following the recession, globaleconomic growth slowed.

The impact of the latest financial crisis continued to affect the pace of growthin advanced economies. A number of advanced economies experienced amarked slowdown in inflation, reflecting weak domestic demand, among otherthings.

Emerging countries, whose economies rely more extensively on exports,suffered the effects of slower growth in global demand. Some are also facingheavy capital outflow.

The international context thus remained fragile in 2013, with a global economicgrowth rate of 3.0%.

Gradual acceleration in the economy, still marked byuncertainty

The global economy is gradually starting to recover. However, the recovery will beaffected by lingering uncertainty, leading to gradual and moderate acceleration ofthe global economy to 3.5% in 2014 and 3.8% in 2015.

The gradual strengthening of the economy will benefit from an improvement inthe situation in advanced economies. Generally speaking, the latter will benefit

from the attenuated impact of fiscal austerity measures and the householddeleveraging process that has been taking place in the last few years.

Emerging economies should also see stronger growth than in 2013, althoughat lower rates than before the last recession.

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Change in Qubecs economic situation1.1.2

The weak global economy is mirrored in the economies of Qubecs main tradingpartners, in particular Canada and the United States, which saw modest economicgrowth.

The Qubec economy continued to expand at a moderate pace in 2013. Real GDPincreased by 1.2% under the combined effect of export recovery and more modestgrowth in domestic demand. Accelerated growth at the end of the year led to a0.3 percentage point upward adjustment in relation to the November 2013Updateon Qubecs Economic and Financial Situation.

The economic outlook for Qubecs main training partners is brighter for 2014, withreal GDP expected to grow by 2.3% in Canada and 2.8% in the United States.

Benefitting from the improved situation in Canada and the United States, Qubecsreal GDP will increase by 1.9% in 2014 and 2015. This is a slightly higher growth

rate than forecast in November 2013.

Net exports will continue to make a positive contribution to real GDP growththanks to the gradual improvement in the global economic climate and aCanadian dollar more favourable to exports.

Growth in domestic demand will moderate, with government spending and theresidential sector making a limited contribution.

TABLE A.1

Economic growth in Qubec(real GDP, percentage change)

2013 2014 2015Average

2013-2015

Budget 2014-2015 1.2 1.9 1.9 1.7

November 2013 0.9 1.8 1.8 1.5

Adjustment +0.3 +0.1 +0.1 +0.2

Note: The figures have been rounded off, so they may not add up to the total indicated.

Sources: Institut de la statistique du Qubec, Statistics Canada and Ministre des Finances et de lconomie duQubec.

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Marked deceleration in the consumer price index in 2013

Despite an improvement in economic conditions in the second half of the year, theconsumer price index (CPI) grew at a much slower pace in 2013. After rising by2.1% in 2012, it edged up just 0.7% in 2013. The GDP deflator followed the sametrend, rising by only 0.9% in 2013 and thereby affecting nominal GDP growth.

The recently weak prices are not specific to Qubec.

In Canada, the CPI increased by 0.9% in 2013.

Economic activity in most advanced economies, in particular the euro areaand the United States, is changing against a backdrop of weak inflation.

Stronger global growth should lead to stronger demand, particularly in advancedeconomies, and that should increase pressure on prices. In Qubec, inflation asmeasured by the GDP deflator is expected to accelerate to 1.6% in 2014 and 2.0%

in 2015 and thus gradually return to values that are close to the historical average.

Nominal GDP affected by weak prices

Affected by weak prices, nominal GDP rose by 2.1% in 2013. It should increase by3.5% in 2014 and 3.9% in 2015, reflecting real GDP growth and the anticipated risein inflation.

However, inflation will increase more gradually than forecast in November 2013.Accordingly, despite the upward adjustment to real GDP growth, nominal GDP

growth is being revised downward by one-tenth of a point for 2014. The forecastfor 2015 is the same as the forecast in November.

TABLE A.2

Real GDP, GDP deflator and nominal GDP in Qubec(percentage change)

2013 2014 2015Average

2013-2015

Real GDP 1.2 1.9 1.9 1.7

Adjustment in relation to November 2013 Update +0.3 +0.1 +0.1 +0.2

GDP deflator 0.9 1.6 2.0 1.5

Adjustment in relation to November 2013 Update 0.4 0.2 0.0 0.2

Nominal GDP 2.1 3.5 3.9 3.2

Adjustment in relation to November 2013 Update 0.0 0.1 0.0 0.0

Note: The figures have been rounded off, so they may not add up to the total indicated.Sources: Institut de la statistique du Qubec, Statistics Canada and Ministre des Finances et de lconomie du

Qubec.

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Consistent rise in the standard of living in Qubec1.1.3

Since 2007, Quebecers standard of living has risen faster than that of Canadians,Ontarians and Americans.

Between 2007 and 2013, real GDP per capita rose by 2.1% in Qubec,

compared with increases of 1.0% in Canada and 1.1% in the United Statesand a 1.2% contraction in Ontario.

CHART A.2

Per capita GDP(index 2007 = 100, in real terms)

Sources: Institut de la statistique du Qubec, Statistics Canada, Conference Board of Canada and Ministre desFinances et de lconomie du Qubec.

99.3

102.1 QC

96.3

101.0 CAN

98.8 ON

95.0

95.2

101.1 US

94

96

98

100

102

104

2007 2008 2009 2010 2011 2012 2013

Qubec Canada

Ontario United States

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Qubecs labour market catches up to Canadas

Driven by employment-oriented public policies, Qubecs labour market hasimproved over the last few decades.

Its robust labour market has enabled Qubec to substantially narrow and even

close the gaps in relation to Canada in unemployment, employment andlabour force participation rates.

TABLE A.3

Key labour market indicatorsPopulation aged 15-64(as a percentage)

Unemployment rateLabour force

participation rate Employment rate

Qubec Canada Qubec Canada Qubec Canada

1980 10.1 7.6 67.7 71.6 60.8 66.1

1990 10.5 8.2 72.9 76.6 65.3 70.3

2000 8.5 6.9 73.4 76.2 67.1 70.9

2010 8.0 8.1 77.3 77.8 71.1 71.5

2013 7.7 7.2 78.2 78.1 72.2 72.5

Source: Statistics Canada.

Despite the improvements, the standard of living of Quebecers remains below thatof Canadians and Ontarians.

TABLE A.4

Per capita GDP(dollars, in real terms)

2007 Gap(%)

2013 Gap(%)

Qubec 39 762 40 615

Ontario 46 834 17.8 46 291 14.0Canada 47 613 19.7 48 087 18.4

Sources: Institut de la statistique du Qubec, Statistics Canada, Conference Board of Canada and Ministre desFinances et de lconomie du Qubec.

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Productivity, a strategic factor in raising Quebecers standardof living

Qubec businesses face increasingly stiffer international competition.

Although productivity gains have been made in recent years, there is stillprogress to be made.

Between 2007 and 2012, the average annual growth rate in labour productivityin Qubec was 0.4%, a similar rate to that in Canada (0.5%), but higher thanthat in Ontario (0.2%).

However, Qubec still has productivity gaps with both Ontario and Canada.

CHART A.3

Labour productivity in the business sector(dollars per hour worked, in real terms)

Source: Statistics Canada.

Importance of investment

As the source of capital stock, investment plays a crucial role in improvingproductivity and competitiveness in an economy.

The capital stock available to workers improves labour productivity andthereby ensures job creation and a better standard of living for citizens.

46.747.2 CAN 47.8

42.8

43.1

QC 43.7

44.344.4

ON 44.7

39

41

43

45

47

49

2007 2008 2009 2010 2011 2012

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Private investment should continue to rally

Since 2011, Qubec firms have followed the lead of governments in the area ofnon-residential investment, sustaining economic growth.

Business investment rose by 12.0% in 2012 and 1.7% in 2013, reaching a

value of $35.4 billion in 2013.

The heightened business investment led to, among other things, an increase incapital stock in the manufacturing sector. Moreover, this sector is dealing withgreater competition from emerging economies.

Despite the increase in investment, capital stock in the manufacturing sector hasstill not reached pre-recession levels.

In addition, despite the higher capital stock per worker, Qubec is still nearly$2 000 per worker behind Ontario and approximately $9 000 behind Canada.

CHART A.4

Capital stock in the Qubecmanufacturing sector

CHART A.5

Capital stock in the manufacturingsector in 2013

(billions of dollars, in real terms) (dollars per worker, in real terms)

Sources: Statistics Canada and Ministre desFinances et de lconomie du Qubec.

Sources: Statistics Canada and Ministre desFinances et de lconomie du Qubec.

QubecsEconomic PolicyPutting Jobs Firstcontains a full range of measures tostimulate private investment. One of the objectives of this policy is to match theCanadian average in terms of investment in machinery and equipment per worker.

38.8

35.2

35.9

34

36

38

40

2007 2009 2011 2013

73 776

75 772

82 802

Qubec Ontario Canada

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Sharp increase in public capital stock

The Qubec government has set ambitious public investment targets. The QubecInfrastructures Plan served to increase public capital stock significantly over the lastfew years.

The plan raised Qubecs public capital stock as a percentage of real GDP from28.2% in 2000 to 34.3% in 2013. It is expected to reach 34.4% in 2015 and remainat similar levels to the last peak 25 years ago.

This was a greater increase than in Canada, where capital stock as a percentage ofreal GDP climbed from 28.0% in 2000 to 31.9% in 2013.

Public capital stock(as a percentage of GDP, in real terms)

Sources: Statistics Canada, Conference Board of Canada and Ministre des Finances et de lconomie duQubec.

33.4

28.2

34.3 34.436.8

37.0

35.0

28.0

31.934.8

31.6

25.1

31.4

24

28

32

36

40

1981 1985 1989 1993 1997 2001 2005 2009 2013

Qubec Canada Ontario

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Budgetary situation1.2

Overview1.2.1

Budget 2014-2015 confirms that fiscal balance will be restored as of 2015-2016 bypursuing rigorous expenditure control. In this regard, the financial framework of

Budget 2014-2015 calls for:

a $2.5-billion deficit in 2013-2014;

a $1.75-billion deficit in 2014-2015;

fiscal balance starting in 2015-2016.

As indicated in the November 2013 Economic a nd F inancial Update, moderategrowth in the economy combined with low inflation has led to a significant revenueshortfall.

The initiatives required to offset last falls adjustments to the financialframework starting in 2013-2014 and to attain fiscal balance as of this yearwould have been too major to be achieved without impeding economic growth.

For example, restraint measures in the order of $2.5 billion would haverepresented an impact of roughly 0.7% of Qubecs GDP.

In this context, the government made the responsible decision to postponeachieving budget balance for two years.

TABLE A.5

Summary of budgetary transactionsBudget 2014-2015(millions of dollars)

2013-2014 2014-2015 2015-2016

BUDGETARY TRANSACTIONS

Budgetary revenue 69 817 71 583 74 621

% change 3.3 2.5 4.2

Budgetary expenditure 72 335 73 733 75 127

% change 3.3 1.9 1.9

Consolidated entities 1 215 1 696 1 818

Contingency reserves 125 200

Shortfall to be offset 530

SURPLUS (DEFICIT) 1 428 454 1 642

BALANCED BUDGET ACT

Deposits of dedicated revenues in the Generations Fund 1 072 1 296 1 642

BUDGETARY BALANCE(1) 2 500 1 750

As a % of GDP 0.7 0.5


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The deficits, which will be added to the debt, will total $4.25 billion.

However, as indicated in the November 2013 Economic and Financial Update, toavoid jeopardizing the attainment by 2025-2026 of its debt reduction objectives, thegovernment will maintain the deposits in the Generations Fund from 2013-2014 to2015-2016 and will increase them by $425 million a year starting in 2016-2017.

These changes will require amendments to:

the Balanced Budget Actto account for the new fiscal deficit objectives;

theAct to reduce the debt and establish the Generations Fundto stipulate theadditional deposits.

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Time frame for balancing the budgetsof the provinces and federal government

Qubec is not the only jurisdiction that has to contend with a deficit. This is also true ofseveral other Canadian jurisdictions.

In 2009-2010, like Qubec, the vast majority of the provinces, along with the federalgovernment, established a time frame for restoring fiscal balance.

Several jurisdictions have revised this deadline since then.

The majority of jurisdictions postponed the return to a balanced budget by two years.

New Brunswick, Newfoundland and Labrador and Nova Scotia have postponedtheir deadlines by three to five years.

More specifically, in their 2013-2014 budgets, New Brunswick, Manitoba,Newfoundland and Labrador, Prince Edward Island and Alberta have postponed the

return to a balanced budget.

Three provinces anticipate a return to a balanced budget in less time than Qubec does.

Ontario and New Brunswick anticipate achieving fiscal balance in 2017-2018, i.e. withineight years.

Time frame for restoring fiscal balance(years)

Number of years anticipatedto restore fiscal balance Year in which

fiscal balance

is restoredInitial Revision Total

Nova Scotia 1 +3 4 2013-2014

British Columbia 2 +2 4 2013-2014

Alberta(1) 3 +2 5 2014-2015

Qubec 4 +2 6 2015-2016

Federal government 4 +2 6 2015-2016

Prince Edward Island(2) 4 +2 6 2015-2016

Newfoundland and Labrador 2 +4 6 2015-2016

Manitoba(2) 5 +2 7 2016-2017

New Brunswick 3 +5 8 2017-2018

Ontario 6 +2 8 2017-2018

Note: The number of years anticipated to attain fiscal balance is calculated starting in 2009-2010, a recessionyear in which most Canadian jurisdictions recorded deficits. Saskatchewan has not recorded a deficitsince 2009-2010.

(1) Deficit budget balance before the use of the stabilization reserve.(2) The number of years necessary to restore fiscal balance was announced in 2010-2011.

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Responsible management of spending in 2012-20131.2.2

The Public Accounts 2012-2013 confirm that the government has managedspending in a responsible manner.

The budget deficit for 2012-2013 was $1.6 billion, a difference of $100 million

compared to the target figure.

The government achieved the best performance of the past ten years from thestandpoint of managing program spending.

Program spending growth was held to 1.2% in 2012-2013, well below theaverage annual increase of 4.4% for the previous nine years.

These results were achieved through rigorous management of public spendingwhile protecting public services. This approach made it possible to offset the loss ofrevenue caused by moderate economic growth and low inflation.

CHART A.6

Program spending growth from 2003-2004 to 2013-2014(per cent)

Sources: Public Accounts 2012-2013and Secrtariat du Conseil du trsor.

3.6

4.9

2.9

4.8

5.6

6.6

5.5

3.02.5

1.2

2.5

2003-2004

2004-2005

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

Average for2003-2004 to2011-2012:

4.4%Average for

2012-2013 and

2013-2014:1.9%

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2012-2013: Efforts totalling $1.5 billion

As soon as the government took office in September 2012, it faced a $1 584-milliondeficit stemming from:

$1 083 million in anticipated expenditure overruns;

a $501-million drop in own-source revenue.

During the year, the government implemented efforts totalling $1 484 million not onlyeliminated the budget impasse, but also met the spending target set for 2012-2013.

The results published in the Public Accounts 2012-2013 indicate that the budgetarybalance within the meaning of the Balanced Budget Act showed a deficit of $1.6 billionfor fiscal year 2012-2013.

Deficit and restraint measures since September 2012 for 2012-2013(millions de dollars)

Note: Budgetary balance within the meaning of the Balanced Budget Act.

1 500 1 600

1 083

501

Budget 2013-2014 of November 2012 Public Accounts 2012-2013

Restraint measurestotalling $1 484 million

Anticipatedexpenditureoverruns

Deficit target

Adjustments toown-source revenue

Actual deficit

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Adjustments to the financial framework1.2.3

Overall, the governments budgetary situation has improved since theNovember 2013 Update. Together, the adjustments:

eliminate, as of 2014-2015, a recurring amount of $400 million of the shortfall

to be offset;

allocate $430 million to the financing of health care institutions;

confirm the deficit targets for 2013-2014 and 2014-2015;

confirm a balanced budget in 2015-2016.

TABLE A.6

Adjustments since the November 2013Update(millions of dollars)

2013-2014-

2014-2015-

2015-2016-

BUDGETARY BALANCE NOVEMBER 2013 2 500 1 750

Shortfall to be offset November 2013 400 1 000

Adjustments related to the economy

Own-source revenue 39 112 212

Federal transfers 50 613 532

Subtotal 11 501 320

Quality and efficiency of public services

Efforts by public bodies 150

Patient-based health care funding 15 40

Program spending(1)

Subtotal 135 40

Financing of public services

Financing of health care institutions 430

Fight against tax evasion 37 51

Subtotal 393 51

Debt service 73 78 125

Other adjustments(2) 41 79 14

Contingency reserves 125

Shortfall to be offset Budget 2014-2015 530

BUDGETARY BALANCE BUDGET 2014-2015 2 500 1 750

(1) Budget 2014-2015 contains no new measures or enhancements of existing programs that would increase theprogram spending target.

(2) Excludes the Generations Fund.

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Adjustments related to the economy

Change in the budgetary situation since the November 2013 Update takes intoaccount the following changes related to the economy:

own-source revenue was revised downward by $39 million in 2013-2014,

$112 million in 2014-2015 and $212 million in 2015-2016;

federal transfers were revised upward by $613 million in 2014-2015 and$532 million in 2015-2016.

Adjustments to expenditures

Program spending

Budget 2014-2015 contains no new measures or enhancements of existingprograms that would increase the program spending target.

Improving the quality and efficiency of public services

The government will ask public bodies to continue their spending control efforts in2014-2015, totalling $150 million.

In addition, the government wants to implement patient-based funding in the healthcare sector. To support this initiative, $15 million in 2014-2015 and $40 millionstarting in 2015-2016 will be earmarked for improving the health managementinformation system to help improve the quality and efficiency of public services.

Ensuring funding for public services

For 2014-2015, the government will allocate $430 million to the Fund to FinanceHealth and Social Services Institutions (FINESSS) using the Canada HealthTransfer (CHT).2

Note that the government stated in the November 2013 Update that noadditional tax would be allocated to FINESSS to fund expenditures of$430 million, revenue stipulated since the 2010-2011 Budget.

The previous government had planned to derive the additional funding froma health fee, which the current government decided not to implement.

Considering its intent not to introduce a new tax or contribution to bedeposited in FINESSS, during the coming year the government will reassessthe financing methods for future FINESSS expenditures.

Lastly, the intensification of efforts to counter tax evasion will generate $37 millionin additional revenue in 2014-2015 and $51 million in 2015-2016.

2 Allocation of this revenue to FINESSS is conditional upon legislative amendments.

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Other adjustments to the financial framework

Debt service has been adjusted downward by $73 million in 2013-2014, $78 millionin 2014-2015 and $125 million in 2015-2016.

The adjustment in 2013-2014 stems from the fact that interest rates were

lower than anticipated.

The adjustment in 2014-2015 is essentially due to the elimination of thecontingency reserve specific to the debt service forecast, whereas theadjustment in 2015-2016 primarily stems from the postponement of the entryinto effect of the accounting standard for currency translation(Section PS 2601) from April 1, 2015 to April 1, 2016.

The other adjustments to the financial framework include:

positive adjustments to the results of consolidated entities;

the environmental framework for hydrocarbons, in the amount of $1 million in2014-2015 and $2 million in 2015-2016.

The contingency reserve stands at $125 million in 2013-2014 and may be used, inparticular, to finance the costs of the tragedy in Lac-Mgantic.

Adjustment to the shortfall to be offset

All of the adjustments reported since the November 2013 Update result in the

elimination, as of 2014-2015, of a recurring amount of $400 million of the shortfallto be offset. In addition, the difference for 2015-2016, evaluated at $1 billion in theNovember Update, is now forecast at $530 million.

TABLE A.7

Shortfall to be offset(millions of dollars)

2013-2014 2014-2015 2015-2016 2016-2017 2017-2018 2018-2019

November 2013 Update 400 1 000 400 400 400

Adjustments 400 470 400 400 400

BUDGET 2014-2015 530

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Anticipated change in revenue in 2013-2014

The anticipated growth in revenue in 2013-2014 will stand at 2.5%, a downwardadjustment of 0.1 percentage point in relation to the growth forecast contained in theNovember 2013 Update(2.6%).

After increasing slightly at the beginning of the year, revenue displayed gradualimprovement, in keeping with the new economic growth forecast.

Indeed, after seven months, i.e. from April to October, revenue growth stood at 2.3% inrelation to the same period the previous year.

Real and anticipated cumulative growth(1)in own-source revenue2013-2014(per cent)

(1) For a given month, change in revenue since the beginning of fiscal year 2013-2014 in relation to the sameperiod in 2012-2013.

Sources: Monthly report on financial transactions for the months from April to October. Ministre desFinances et de lconomie forecasts for fiscal year 2013-2014 overall.

4.7

6.4

3.3

3.8

1.8

6.1 5.9

1.3

0.4

0.6 0.8

1.8 2.32.5

April

May

June

July

August

September

O

ctober

Nov

ember

Dec

ember

J

anuary

Fe

bruary

March

Annual change

Real cumulative growth

Anticipated cumulative growth

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ASECTION

The governments financial framework1.3

This section presents the governments financial framework:

the financial framework from 2013-2014 to 2018-2019;

the consolidated financial framework for 2013-2014 to 2018-2019. The five-year financial framework

The governments financial framework anticipates a return to a balanced budget in2015-2016. It anticipates deficits of $2.5 billion in 2013-2014 and $1.75 billion in2014-2015.

Forecast growth in budgetary revenue is 2.5% in 2014-2015 and 4.2% in2015-2016.

Forecast growth in budgetary expenditure for the same years is 1.9%, makingit possible to balance the budget in 2015-2016.

Starting in 2017-2018, the pace of program spending growth will be broughtinto line with anticipated growth in revenue.

The financial framework includes contingency reserves starting in 2015-2016.Moreover, a $530-million shortfall needs to be offset for 2015-2016.

The anticipated deposits in the Generations Fund are being maintained until

2015-2016, and then increased annually by $425 million starting in 2016-2017 inorder to fully offset the additional deficits stemming from the postponement by twoyears of the achievement of a balanced budget.

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TABLE A.8

Financial framework from 2013-2014 to 2018-2019(millions of dollars)

2013-2014-

2014-2015-

2015-2016-

2016-2017-

2017-2018-

2018-2019-

GENERAL FUND

Budgetary revenue

Own-source revenue 53 148 55 085 57 273 59 079 60 972 62 582

% change 2.5 3.6 4.0 3.2 3.2 2.6

Federal transfers 16 669 16 498 17 348 17 992 18 493 19 241

% change 6.1 1.0 5.2 3.7 2.8 4.0

Total budgetary revenue 69 817 71 583 74 621 77 071 79 465 81 823

% change 3.3 2.5 4.2 3.3 3.1 3.0Budgetary expenditure

Program spending 63 825 65 132 66 442 67 802 70 033 72 226

% change 2.5 2.0 2.0 2.0 3.3 3.1

Debt service 8 510 8 601 8 685 8 971 9 107 9 285

% change 9.6 1.1 1.0 3.3 1.5 2.0

Total budgetary expenditure 72 335 73 733 75 127 76 773 79 140 81 511

% change 3.3 1.9 1.9 2.2 3.1 3.0

CONSOLIDATED ENTITIES

Non-budget-funded bodies and specialfunds(1) 220 472 207 94 46 40

Health and social services and educationnetworks 77 72 31 8 29 48

Generations Fund 1 072 1 296 1 642 2 341 2 935 3 357

Total consolidated entities 1 215 1 696 1 818 2 443 3 010 3 445

Contingency reserves 125 200 400 400 400


SURPLUS (DEFICIT) 1 428 454 1 642 2 341 2 935 3 357

BALANCED BUDGET ACT

Deposits of dedicated revenues in theGenerations Fund 1 072 1 296 1 642 1 916 2 510 2 932

Additional deposits in theGenerations Fund 425 425 425


(1) Includes consolidation adjustments.


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ASECTION

TABLE A.9

Consolidated financial framework from 2013-2014 to 2018-2019(millions of dollars)

2013-2014-

2014-2015-

2015-2016-

2016-2017-

2017-2018-

2018-2019-

Consolidated revenue

Personal income tax 26 347 27 646 28 940 30 344 31 469 32 549

Contributions for health services 6 223 6 434 6 648 6 853 7 057 7 247

Corporate taxes 5 892 6 231 6 592 6 846 7 114 7 335

School taxes 1 729 1 832 1 957 2 124 2 201 2 248

Consumption taxes 17 067 17 369 17 916 18 042 18 403 18 580

Duties and permits 2 045 2 323 2 504 2 526 2 492 2 514

Miscellaneous 9 055 9 787 10 107 10 401 10 714 11 421

Government enterprises 5 121 5 053 4 999 5 004 5 050 5 045


Own-source revenue 74 551 77 971 81 305 84 481 87 435 90 296

% change 3.0 4.6 4.3 3.9 3.5 3.3

Federal transfers 18 559 18 282 18 826 19 308 19 917 20 668

% change 5.9 1.5 3.0 2.6 3.2 3.8

Total consolidated revenue 93 110 96 253 100 131 103 789 107 352 110 964

% change 3.6 3.4 4.0 3.7 3.4 3.4

Consolidated expenditure

Expenditure 83 643 85 742 87 481 89 048 91 576 94 256

% change 3.7 2.5 2.0 1.8 2.8 2.9

Debt service 10 770 10 965 11 338 12 000 12 441 12 951

Total consolidated expenditure 94 413 96 707 98 819 101 048 104 017 107 207

% change 4.3 2.4 2.2 2.3 2.9 3.1

Contingency reserves 125 200 400 400 400


SURPLUS (DEFICIT) 1 428 454 1 642 2 341 2 935 3 357

BALANCED BUDGET ACT

Deposits of dedicated revenues in theGenerations Fund 1 072 1 296 1 642 1 916 2 510 2 932

Additional deposits in theGenerations Fund 425 425 425


(1) Budgetary balance within the meaning of theBalanced Budget Act.

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Prudence factor for the economic and budget forecasts

A number of jurisdictions apply a prudence factor to guard against risks associated withthe economic or budget scenarios. Qubec applies this factor in two ways:

implicitly, through cautious economic forecasts that are equivalent to or below theaverage private sector forecast;

explicitly, in the form of the contingency reserve. The explicit prudence factor coversthe negative risks related to expenditure and revenue, which may stem from pooreconomic conditions.

The contingency reserve can fluctuate from year to year.

Qubecs budget governance as underlined by the OECD

In December 2013, the OECD released the results of a study on budget governance bythe federal government and each of the Canadian provinces.1

The analysis, which sought to determine whether the governments adopt properinstitutional arrangements for budgeting, focused on five features:

prudent economic assumptions and budgetary tools for dealing with unforeseencircumstances;

medium-term budget frameworks and departmental implementation thereof;

top-down techniques for setting expenditure ceilings and budget flexibility;

focus on results;

budget transparency.

Qubec ranks second among the Canadian jurisdictions. The study highlightsQubecs excellent practices in terms of frequent economic and financial updating.

1 OECD, Budget governance in Canada: Comparing practices within a federation, Journal on Budgeting, vol. 13,December 2013, pp. 9-30.

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ASECTION

Spending growth1.4

Program spending1.4.1

In 2012-2013, the government limited program spending growth to 1.2% throughresponsible management.

The pursuit of spending control in all government departments will enableachievement of the budgetary objectives. To that end:

the spending target for 2013-2014 will remain at $63 825 million, the target setin the March 2013 Update;

program spending growth will be held to 2.0% in 2014-2015 and the twofollowing years;

starting in 2017-2018, program spending growth will be equivalent to growth inbudgetary revenue, i.e. an average growth rate of 3.2% in 2017-2018 and2018-2019.

CHART A.7

Program spending growth(per cent)

1.2

2.5

2.0 2.0 2.0

3.33.1

2012-2013

2013-2014

2014-2015

2015-2016

2016-2017

2017-2018

2018-2019

2.0

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Program spending by major sectors

In 2014-2015, program spending will increase by 2.0%, or $1 307 million, to$65.1 billion.

Program spending for the Ministre de la Sant et des Services sociaux will

rise by $938 million, a 3.0% increase.

Spending allocated to the Ministre de lducation, du Loisir et du Sport andthe Ministre de lEnseignement suprieur, de la Recherche, de la Science etde la Technologie will be increased by a total of $493 million, or 3.0%.

Spending by other departments will drop overall by $124 million, a 0.8%decrease.

TABLE A.10

Program spending(millions of dollars)

Change

2013-2014 2014-2015 ($ million) ( %)

Sant et Services sociaux 31 258 32 196 938 3.0

ducation(1) 16 596 17 089 493 3.0

Other departments 15 971 15 847 124 0.8

TOTAL 63 825 65 132 1 307 2.0

(1) Includes program spending allocated to the Ministre de lducation, du Loisir et du Sport and the Ministre delEnseignement suprieur, de la Recherche, de la Science et de la Technologie.

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ASECTION

Consolidated expenditure1.4.2

Average annual growth in consolidated expenditure excluding debt service will be2.1% from 2014-2015 to 2016-2017.

CHART A.8

Growth in consolidated expenditure excluding debt service (per cent)

(1) Attributable to the allocation of $ 430 million to FINESSS out of the CHT.

2.6

3.7

2.1

2.01.8

2.8 2.9

2012-2013

2013-2014

2014-2015

2015-2016

2016-2017

2017-2018

2018-2019

2.5

2.1

(1)

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Government health funding

In 2014-2015, spending on health will increase by 3.0% as a result of:

a $938-million, or 3.0%, rise in spending on health programs;

a $38-million increase in revenues drawn from the progressive healthcontribution and the tax increase for high-income earners;

an allocation of $430 million to FINESSS from Canada Health Transfers(CHT).

Government health funding will have climbed by 4.0%, on average, between2010-2011 and 2014-2015.

TABLE A.11

Government health funding from 2010-2011 to 2014-2015 (millions of dollars)

2010-2011-

2011-2012-

2012-2013-

2013-2014-

2014-2015-

Program spending 28 586 29 412 30 177 31 258 32 196

% change 3.8 2.9 2.6 3.6 3.0

FINESSS EXPENDITURES

Progressive health contribution(1) 252 609 925 702 718

Increase in tax rate for high-incomeearners 74 374 395

Subtotal 252 609 998 1 075 1 113

Allocation of part of the compensation forharmonization of the QST with the GST 430

Allocation of part of the health transfers(CHT) 430

Total FINESSS 252 609 998 1 505 1 543

TOTAL 28 838 30 021 31 175 32 763 33 739

Change in million $ 1 304 1 183 1 154 1 588 976

% change 4.7 4.1 3.8 5.1 3.0

(1) The health contribution has been progressive since January 1, 2013.

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ASECTION

A more moderate and more stable approach to spending than elsewhere

The approach that Qubec has adopted to ensure a return to a balanced budget ismore moderate and more stable than elsewhere.

Consolidated spending growth in 2014-2015 and 2015-2016 will stand at 2.5% and2.0%.

Other jurisdictions in the rest of Canada have further limited growth in spending.

British Columbia anticipates 1.7% growth in spending in 2013-2014 and 0.8% in2014-2015, a slowdown in relation to 2012-2013.

The federal government anticipates a reduction in spending for 2014-2015.

Ontario will experience striking fluctuations in its spending growth rates, which willfall from 4.2% in 2013-2014 to 0.4% in 2015-2016.

Consolidated spending growth excluding debt service in certain jurisdictions(per cent)

2012-2013 2013-2014 2014-2015 2015-2016

Qubec

Program spending 1.2 2.5 2.0 2.0

Consolidated expenditure 2.5 3.7 2.5 2.0

Federal government 0.9 1.9 0.4 2.7

British Columbia 2.9 1.7 0.8 2.0

Ontario 0.4 4.2 1.1 0.4

Alberta 5.5 3.0 2.1 2.0

Nova Scotia 3.5 3.6 2.6 2.0

Source: Finance Canada.

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A sustainable weight of spending in the long term

In order to restore balance between expenditure and taxpayers ability to pay, it isimportant to gradually restore expenditure to its historic weight in the economy.

Between 1972 and 2012, consolidated expenditure as a percentage of GDP

was 20.9% on average. In 2013-2014, the share of expenditure was 22.9%, or2.0 percentage points higher.

The approach that the government has adopted will make it possible to graduallyrestore such balance without compromising economic recovery.

By 2017-2018, planned growth in spending will bring consolidated expenditure as apercentage of GDP to 21.7%.

It is important to restore this balance to:

prevent excessive spending from creating an onerous fiscal burden in relationto our neighbours, which could undermine tax competitiveness and limiteconomic growth in Qubec;

ensure that the government has the capacity during difficult economic times tofinance increased spending that might be necessary to support the economy.

CHART A.9

Change in the share of consolidated expenditure(1),(2)in the economy(as a percentage of GDP)

Note: Calculations of the Ministre des Finances et de lconomie du Qubec.(1) Excluding debt service.(2) Since 1997, the government has capitalized its investment spending and charges a corresponding expenditure to

the depreciation of the capitalized asset.

19.2

21.0

22.6

19.1

22.1

18.719.4

23.422.9

21.7

20.7

15

18

21

24

1972-1973 1981-1982 1990-1991 1999-2000 2008-2009 2017-2018

Average 1972-2012 :20.9%

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ASECTION

Maintenance of the debt reduction objectives1.5

As at March 31, 2014, the ratio of gross debt to GDP will be 54.3% and the ratio ofdebt representing accumulated deficits to GDP, 32.7%.

Three factors compel Qubec to maintain the debt reduction objectives between

now and 2025-2026:

rapid aging of the population. This phenomenon is gradually exertingdownward pressure on economic growth and, consequently, governmentrevenues:

what is more, additional pressure is already being exerted on certainexpenditures because of this phenomenon, in particular health care;

a higher level of indebtedness. The weight of Qubecs debtin the economy isthe highest of the Canadian provinces. This high level of indebtednesssignificantly affects debt service:

the higher debt costs are, the less money there is to fund public services orthe smaller the leeway to maintain Qubecs tax competitiveness;

a capacity to support the economy. Debt reduction must continue and even beaccelerated in times of economic growth so that Qubec is in a position tocontend with an eventual recession.

CHART A.10

Gross debt as at March 31

CHART A.11

Debt representing accumulateddeficits as at March 31

(as a percentage of GDP) (as a percentage of GDP)

Note: The gross debt excludes pre-financing and takesinto account the sums accumulated in theGenerations Fund.

53.6

54.3

48.8

45.0

42

44

46

48

50

52

54

56

58

2012- 2016- 2020- 2024-

Objective

0

2019 20262013 2015

33.0

32.7

25.9

17.0

14

16

18

20

22

2426

28

30

32

34

36

38

2012- 2016- 2020- 2024-

Objective

02013 2019 20262015

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Additional deposits in the Generations Fund starting in2016-2017

The impact of the deficits on the debt will require additional annual deposits of$425 million in the Generations Fund starting in 2016-2017.

Thus, as announced in the November 2013 Update, the additional depositsrequired to ensure compliance with the debt reduction objectives will be drawn fromrevenues stemming from the specific tax on alcoholic beverages, which representsa stable source of income.

TABLE A.12

Deposits in the Generations Fund(millions of dollars)

2015-2016 2016-2017 2017-2018 2018-2019

Current deposits in the Generations Fund 1 642 1 916 2 510 2 932

Additional deposits drawn from revenue stemmingfrom the specific tax on alcoholic beverages(1) 425 425 425

DEPOSITS IN THE GENERATIONS FUND 1 642 2 341 2 935 3 357

(1) These deposits will be added to the $100 million annual deposits in the Generations Fund starting in 2014-2015,as announced in Budget 2013-2014.

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ASECTION

2. A PLAN FOR RESPONSIBLE MANAGEMENT OFPUBLIC SPENDING

Faced with a significant revenue shortfall, the government made, last fall, theresponsible decision to postpone achieving budget balance for two years.

To restore fiscal balance, the government will avoid raising taxes and ensure thatspending continues to be managed in a disciplined manner. Program spendinggrowth is set at 2.0% for 2014-2015 and the following two years. Annualconsolidated spending growth is set at an average of 2.1% for 2014-2015 to2016-2017.

The government will achieve these objectives through a plan for responsiblemanagement of public spending that consists of three components:

responsible remuneration of government employees; greater quality and efficiency in public services;

improved funding for public services.

These principles are in line with the governments determination to provide moreefficient services to the public, optimize the services provided per dollar spent bythe government, and respect the populations ability to pay.

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Taking action toward responsible remuneration2.1

Rigorous spending management must necessarily take into account managementof the governments global payroll cost. In 2013-2014, remuneration expendituresstand at $37.3 billion, representing 59% of government spending.

For the government, the remuneration challenge is twofold. It must take intoaccount taxpayers ability to pay, while enabling the state, as employer, to offer itsemployees competitive pay.

That is the context in which the government intends to reach the next payagreements with its employees.

The weight of remuneration in government spending

Remuneration includes the regular remuneration of employees and physicians,

overtime and certain indemnities, fringe benefits and other employer contributionsmade by the government, such as the contribution to retirement plans, the QubecPension Plan, the Health Services Fund, employment insurance and the Qubecparental insurance plan.

Operating expenses include expenses incurred to carry out the programs ofgovernment departments and budget-funded bodies.

Capital expenditures include the amounts incurred to acquire, build, develop andupgrade capital property, including those relative to public-private partnershipagreements.

Support expenses include transfers intended to provide financial assistance torecipients for purposes other than operations, remuneration, and principal and interest.

Program spending components2013-2014

Note: Doubtful accounts, savings to be realized by entities and anticipated lapsed appropriations are includedin operating expenses.

Source: Expenditure Budget 2013-2014of the Secrtariat du Conseil du trsor.

Remuneration59% ($37.3 billion) Operating expenses

14% ($8.9 billion)

Capital expenditures

6% ($3.5 billion)

Support expenses22% ($14.0 billion)

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ASECTION

The governments remuneration expenditures2.1.1

The current pay agreement between the government and its 430 000 employeesends on March 31, 2015. For the new agreement, the government intends to setresponsible remuneration with its employees.

Under the existing agreement, the payroll will have risen by average of 3.6% a yearbetween April 1, 2010 and March 31, 2014. This rise is due, in particular, to payincreases, fees and other benefits granted.

TABLE A.13

Growth in government remuneration(1)from 2010-2011 to 2013-2014(millions of dollars)

2010-2011 2011-2012 2012-2013 2013-2014Average

(10-11 to 13-14)

Payroll 30 615 31 824 32 617 34 273% change 2.8 3.9 2.5 5.1 3.6

(1) Excluding retirement plans in particular.Source: Secrtariat du Conseil du trsor.

The next pay agreements

It is important for the offer of public services to be in keeping with the ability to payof the government and its taxpayers. That is why the government wants tonegotiate with its employees a fair and equitable agreement for all parties.

Economic growth is gradually picking up. Consequently, as in the case ofgovernment employees existing collective agreement, pay increases may beadjusted based on the economys performance and, consequently, governmentrevenues.

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ASECTION

Remuneration of physicians2.1.2

In 2007 and 2011, the government entered into an agreement with each federationof physicians, the Fdration des mdecins spcialistes du Qubec (FMSQ) andthe Fdration des mdecins omnipraticiens du Qubec (FMOQ). Theseagreements are in force until March 31, 2015.

The pay raises provided for in the agreements were granted primarily to makeup for the pay gap between Qubec physicians and physicians practisingelsewhere in Canada.

In particular, under the agreements, physicians remuneration has risen by 67%from 2008-2009 to 2013-2014, an average annual increase of 8.9%. Bycomparison, during the same period, the remuneration of employees in the publicand parapublic sectors has grown by 22%.

In 2013-2014, the remuneration envelope for some 18 000 physicians will reachnearly $6.1 billion.

CHART A.12

Growth in the remuneration ofphysicians and public andparapublic sector employeesfrom 2008-2009 to 2013-2014

CHART A.13

Change in the remuneration ofphysicians since 2004-2005

(per cent) (billions of dollars)

67%

22%

Physicians

Public andparapublic sectoremployees

8.9%a year

3.3%

a year

3.3 3.43.7

4.14.5

4.85.1

5.66.1

2005-2006

2007-2008

2009-2010

2011-2012

2013-2014

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The next pay agreements

By the time the existing agreements expire, physicians will have receivedsubstantial pay increases in recent years. Funding them will have required allQubec taxpayers to do their part.

Moreover, the government wants to reach a new, long-term agreement for thecoming years that takes into account, in particular, maintenance of the significantremuneration gains and changes in remuneration compared with the rest ofCanada.

In addition, as part of these discussions, the government would like to spread theplanned increases for the next two years over a longer period in the long-termagreement.

The amounts thus freed up will be allocated to health care.

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Patient-based funding in the health sector2.2.1

The government wants to gradually bring patient-based funding into the healthsector.

Reminder of the mandate given to a panel of experts

In the Budget Speech of March 20, 2012, the government undertook an importantinitiative with respect to the funding of the Qubec health and social servicessector, by setting up the Expert Panel for Patient-Based Funding.3

This step was aimed, in particular, at proposing ways of implementingpatient-based funding formulas in the health network, in order to improve serviceaccess, quality, fairness and efficiency. In addition, concrete initiatives for applyingthe funding were to be identified in the health and social services network.

Contrary to the funding of institutions based on global and historical budgets,patient-based funding establishes a direct link between the care provided to

patients, the quality of the care and its funding. Patient-based funding includes a number of incentives designed to ensure that

high-quality care is offered and delivered efficiently, and is underpinned byactual results.

Recommendations of the expert panel and the governmentspriorities

The expert panel submitted to the government its report, entitled Pour que largentsuive le patient : Limplantation du financement ax vers les patients dans lesecteur de la sant, in which it made recommendations with a view to theimplementation of patient-based funding in the health and social services network.

In keeping with its pragmatic approach, the expert panel identified three concreteareas that should be prioritized for the introduction of patient-based funding:

broadening of the access-to-surgery program in order to fund all surgeries onthe basis of volume and quality;

application of best practices to improve care quality under a best-practicefunding program;

taking charge of people with chronic illnesses through funding that facilitatescare integration.

As proposed by the expert panel, the government will allocate amounts in adedicated envelope to improve management information in the health sector.

3 This committee was initially called Groupe dexperts pour le financement lactivit. In BudgetSpeech 2013-2014, the mandate of the expert panel was broadened and the panels name waschanged.

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ASECTION

Approach proposed by the expert panel for implementingpatient-based funding

The Expert Panel for Patient-Based Funding proposed a gradual, structuredimplementation approach, comprised of several stages, that will take four years tocarry out.

The government will explain soon how it intends to implement the reportsrecommendations.

ILLUSTRATION A.1

Implementation approach proposed by the panel of experts

Source: Expert Panel for Patient-Based Funding, Pour que largent suive le patient : Limplantation du financementax vers les patients dans le secteur de la sant, Qubec, February 2014.

2014-2015

Taking charge of people

with chronic illnesses,

through funding that

facilitates care integration

Information systems and

other requirements to be

implemented

Simulate volume-and-rate-based funding

Publish data on qualityand access

Identify 4 to 6 proceduresannually for

implementation of bestpractices

Prepare best-practiceguides

Fund on a volume andrate basis

Simulate quality-and-access-based funding

Upgrade institutions forprocedures approved

under the best-practicefunding program

Support the most promisinginitiatives for taking charge ofpeople with chronic illnesses,

by means of financial tools

Pay the full trajectory ofcare intra-institution

Broadening of the

access-to-surgery

program

Best-pratice

funding program

Identify target populations andclassification systems

Track experiments in Qubecand elsewhere

Continue analyses for the use offunding to support Qubec

experiments

Pay th full trajectory ofcare inter-institution

Pay on a best-practice

basis for the newprocedures chosen

Identify development andconversion needs respecting

information resources andadjustment needs respecting the

legal framework

Set up the teams needed tospearhead the shift to patient-based

funding

Produce the data architecture andanalyses on the following work to

be carried out:

principal clienteles classification

system centralized data warehouse normalized accounting system data cross-matching and analysis

tools

Upgrade clinical and financial data,in particular for per-case costs and

benchmarking

Develop and implement over a fewyears, according to the conclusions

of the analyses

Pay institutions on aper-service basis for thenew procedures chosen

2015

-2016

2016-2017

2017-2

018

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Concrete proposals for commencing implementation of patient-basedfunding in Qubec

Advocating a pragmatic approach, the expert panel identified three concrete areas thatshould be prioritized for the introduction of patient-based funding.

Broadening of the access-to-surgery program: relying on the experienceacquired in the field of surgery

The panel proposed that the access-to-surgery program, an activity-based fundingprogram, be broadened for use in an initial application of patient-based funding and fora better fit with the main policy directions of the health system.

The broadened program would cover almost the full surgical output.

A mechanism would be introduced into the funding received by institutions toaccount for the quality of and access to health care.

Best-practice fundingThe second priority application concerns care quality.

Further to the experience of the Qubec colorectal cancer screening program, theexpert panel proposed that patient-based funding be used to promote bestpractices, thereby stimulating efforts to improve the quality of care.

The objective would be to identify the priorities chosen for Qubec as a whole withrespect to clinical practices, and bolster their dissemination through funding definedaccording to best practices.

Taking charge of people with chronic illnesses: funding that facilitates careintegration

In the view of the expert panel, using funding that facilitates care integration to assist intaking charge of people with chronic illnesses is the third priority application.

Taking charge of people with chronic illnesses represents a challenge for Qubec,owing in particular to population aging.

Patient-based funding is a way to support and stimulate better service integration, aprerequisite for taking charge of people suffering from chronic illness.

The expert panel proposed that the implementation of patient-based funding in thisfield start with concrete experiments backed by the required support.

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ASECTION

Better management information in the health sector

Access to clinical and financial information is crucial to improving the quality ofcare, properly monitoring access to services and fostering the efficiency of thehealth and social services sector.

This information is necessary to health management and adequate reporting.High-quality clinical and financial information will optimize the benefits of everydollar spent by the government. This will result in benefits for both caregivers andpatients.

In particular, the government wants to:

support the implementation of patient-based funding in the health sector, inorder to achieve the strategic objectives of the health and social servicessystem, namely, access, quality, efficiency and fairness;

support management by improving financial reporting in the health and socialservices network.

Assistance for the implementation of patient-based funding

In keeping with the expert panels recommendations, the following will graduallybecome available in coming years further to investments in clinical and financialinformation resources:

management tools such as per-case costs; integration of clinical and financial data to better monitor the quality and

efficiency of health care delivery;

applications enabling comparisons on the basis of recognized indicators.

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Support for management by improving financial reporting

The availability of reliable financial data is key to financial management andreporting. Qubec lags behind in certain areas in this regard.

Due to multiple processing and cross-matching requests, it currently takes a

lot of effort to produce financial reports and the time required is incompatiblewith management needs in the field.

Qubec is among the Canadian provinces that make their real health dataavailable the latest.

To improve financial reporting, the government wants to modernize healthinformation systems.

A reserve to fund modernization of information in the health

sectorTo support this initiative, the government will create a reserve to be administeredby the Ministre des Finances et de lconomie.

For this purpose, additional funding of $15 million for 2014-2015 and $40 million for2015-2016 and subsequent years will be granted to the Ministre des Finances etde lconomie. For 2014-2015, the amounts will be included in the expenditurebudget of the Ministre des Finances et de lconomie.

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Greater efficiency in school boards2.2.2

Qubec has 72 school boards: 3 special-status school boards, 9 English schoolboards and 60 French school boards.

In 2013-2014, the expenditure budget allocated to school boards totals almost 10%

of consolidated government expenditure. School boards, which account for a notnegligible share of the government budget, see to the organization of educationservices, a determining factor in the social and economic development of Qubec.

Large per-student cost gap across school boards

Major disparities have been found in per-student costs in the various schoolboards.

In general, the bigger a school board, the lower its per-student costs, suggestingthat grouping some of the boards would generate savings.

The gap per student between school boards with 5 000 to 9 999 students andthose with at least 35 000 students is over $1 000.

Although these disparities are explained by a number of factors, such as thepresence of students with adjustment problems, remoteness and services fornewcomers, the government is convinced that economies of scale are possible.

TABLE A.15

Per-student cost, by school board size2011-2012(dollars per student)

Number ofstudents

Teaching andtraining

Teachingsupport Administration

Movable andimmovable

property Total

0 to 4 999 5 806 2 921 970 1 071 10 776

5 000 to 9 999 5 248 2 424 622 836 9 131

10 000 to 14 999 4 981 2 051 521 674 8 227

15 000 to 24 999 4 951 2 118 458 671 8 197

25 000 to 34 999 4 632 2 058 438 669 7 79635 000 and over 4 714 1 930 436 579 7 659

CSDM(1) 5 506 2 174 520 787 8 987

Note: The figures have been rounded off, so they may not add up to the total indicated.(1) Commission scolaire de Montral. 86 849 students in 2011-2012.Source: Ministre de lducation, du Loisir et du Sport.

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An effort by public bodies2.2.3

Reduction in spending by bodies and special funds

Budget 2013-2014 provided that non-budget-funded bodies and special funds wereto contribute to the fiscal effort by reigning in their spending growth.

Section 59 of theAct respecting mainly the implementation of certain provisions ofthe B udget Speech of 20 November 2012 gave the Minister of Finance and theEconomy and the Chair of the Conseil du trsor the power to set, for each of thefiscal years beginning in 2013-2014 and 2014-2015, spending reduction targets forbodies and special funds.

Thus, targets totalling $200 million were set for bodies and special funds for fiscalyear 2013-2014.

As allowed under the Act, the government is renewing this measure, requiring

bodies and special funds to cut their spending by $150 million for 2014-2015.

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Better presentation of budgetary information2.2.5

Three-year spending objectives by mission

In Table A.9 in this section of the Budget Plan, the government presents aconsolidated financial framework from 2013-2014 to 2018-2019 that is comparable

to the real data published in the governments consolidated financial statements.

When it published the economic and financial update in November 2013, thegovernment affirmed its intention to maintain responsible spending, in particular bybolstering planning by government departments and public bodies.

To follow through on this commitment, the government intends to publish, as ofBudget 2015-2016, global spending objectives, by mission, for a three-year period.

Long-term forecasts

Under its fiscal policy, the government presents five-year financial forecasts. In acontext of demographic change, more must be done.

That is why, by Budget 2015-2016, the government will update its long-termforecasts, in collaboration with research groups.

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Ensuring funding for public services2.3

The available basket of public services is large and diversified. Some services arefree, others are generally offered at a cost advantageous to Quebecers.

To ensure the funding and quality of public services, their rates must be set at the

right level. In this regard, the government plans to:

raise the parental contribution for childcare services;

revise education cost-sharing for foreign university students.

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Higher parental contribution for childcare services2.3.1

Ever-decreasing share of the parental contribution

Since 1997, the Qubec government has been gradually makingreduced-contribution childcare services available for children under five years of

age. The network has developed at a steady pace, so that, over the past ten years,the amounts allocated to fund it have risen from $1.5 billion to $2.7 billion, anincrease of over $1 billion.

The network is funded by both a government subsidy and a parental contribution.Initially set at $5 a day, the parental contribution has been raised only once, to $7on January 1, 2004. Since then, it has accounted for an ever-decreasing share ofnetwork funding.

As a result of the rate freeze in place since 2004, the parental contributionsshare, which was approximately 20% in 1997, fell to 17.2% in 2004-2005 andto 13.4% in 2013-2014.

To illustrate, in constant 2004 dollars, the $7-childcare rate would representonly $5.89 in 2014.

TABLE A.16

Change in the funding of reduced-contribution childcare services (millions of dollars)

2003-

2004-

2004-

2005-

2006-

2007-

2008-

2009-

2010-

2011-

2011-

2012-

2012-

2013-

2013-

2014-

Government subsidy 1 338 1 393 1 578 1 800 2 087 2 240 2 253 2 348

Parental contribution 210 289 317 333 350 356 357 364

Total funding 1 548 1 682 1 895 2 133 2 437 2 596 2 610 2 712

Share of the parentalcontribution (%) 13.6 17.2 16.7 15.6 14.4 13.7 13.7 13.4

Source: Ministre de la Famille.

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A contribution that now represents only a fraction of the dailycost

Although the government subsidy for a reduced-contribution childcare space roseon average from $29 in 2004-2005 to $40 in 2012-2013, the parental contributionremained unchanged, at $7, during that period.

For example, the amount of the parental contribution per day in a childcarecentre (CPE) now represents only 11.8% of the cost, that is, $7 out of totalcost of $59.15 a day ($52.15 + $7).

On the basis of 260 days a year, the parental contribution stands at $1 820,compared to a total cost of $15 379 in CPEs.

TABLE A.17

Change in the average government subsidy for a childcare space(dollars per childcare day)

2004-2005 2006-2007 2008-2009 2010-2011 2012-2013

CPE 37.80 42.28 47.80 50.75 52.15

Home childcare 21.35 19.67 20.60 25.17 26.93

Subsidized daycare 31.31 34.84 38.76 40.89 42.64

Weighted average 29.23 30.84 34.11 37.82 39.69

Source: Ministre des Finances et de lconomie du Qubec.

Report on the quality and continuity of childcare services

In October 2013, the Ministre de la Famille created a task force called Chantier sur laqualit et la prennit des services de garde ducatifs lenfance et sur loptimisationde leur financement.

The task forces mandate consisted in examining the governance and funding methodof CPEs and coordinating offices and proposing possible solutions for optimizinginvestments in the network.

The task force pointed out the considerable growth in the networks budget, and madethe following principal observations:

financial positions that vary from one CPE to the next; a funding method that does not encourage economies of scale; a fixed parental contribution despite the significant increase in costs.

In their report, tabled in December 2013, the task force members proposed, amongother things, to:

consolidate organizational structures on a voluntary basis;

revise the budget rules and optimize resources;

raise and index the parental contribution so as to restore a fair balance between theparents share and that of the government.

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A network on the path to completion, compounding thefinancial pressure

To meet parents needs, budgets 2011-2012 and 2013-2014 announced thecreation of 30 000 additional spaces. These are over and above the220 000 spaces already available, bringing the total number of spaces to 250 000

on completion of the network.

TABLE A.18

Investments to create new spaces(millions of dollars)

2012-2013-

2013-2014-

2014-2015-

2015-2016-

2016-2017- At term(1)

Number of spaces 661 4 005 13 070 22 043 30 000 30 000

Financial impact 1 21 119 260 422 511

(1) In 2017-2018.Source: Ministre de la Famille.

The pledge to complete the network in December 2016, combined with the costincrease of the existing spaces, brings considerable extra financial pressure tobear. As a result, the parental contribution to the funding of the network must berevised.

At term, these new spaces will represent recurring additional investments ofover $500 million.

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A gradual increase in the contribution

To optimize the funding and ensure the continuity of childcare services, thegovernment is announcing in this budget a gradual increase in the parentalcontribution from $7 to $9. This increase will be followed by rate indexing, as ofSeptember 2016, according to the annual variation in per capita disposable

income. The parental contribution will be set as follows:

$8 as of September 1, 2014;

$9 as of September 1, 2015;

$9.205as of September 1, 2016.

TABLE A.19

$2 increase in the parental contribution over two years,with indexing to follow(dollars per childcare day)

Currentrate

At September 1 of the year

2014 2015 2016(1)

Parental contribution 7.00 8.00 9.00 9.20

(1) Indexing according to the forecasted annual variation in per capita disposable income, that is, 2.3% inSeptember 2016.

Source: Ministre des Finances et de lconomie du Qubec.

The increase in the parental contribution will boost the funding available tocomplete the network.

It will also raise the parental contribution by 13.4% to approximately 16% ofchildcare costs as a whole, a share that will remain below what it was in2004-2005.

TABLE A.20

Financial impact of the $2 increase in the childcare rate over two yearsand of indexing(millions of dollars)

2014-2015 2015-2016 2016-2017

Financial impact 32 90 125

Source: Ministre des Finances et de l conomie du Qubec.

The long phase of growing and developing the network continues, and the increasein the parental contribution, to be followed by rate indexing, will restore balance tothe funding and foster a more harmonious development of the childcare service

offer.

5 Indexation based on the annual change in personal disposable income. The planned rate ofindexation in September 2016 is 2.3%. However, the actual rate will be determined in 2016.

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Review education cost-sharing for foreign university2.3.2students

The number of foreign students enrolled in Qubec universities has swelled inrecent years.

Recognizing the important contribution these students make to Qubecsdevelopment, the government helps fund their education.

Significant cost to the government

In 2011-2012, the cost of education for foreign students totalled $573 million,$318 million of which was funded by the government.

Several aspects of the fees payable need to be reviewed.

For example, in 2011-2012, 20% of Canadian students who were notresidents of Qubec6and 49% of foreign students received exemptions.

The exemptions for foreign students totalled $132 million, or roughly onethird of the total bill.

Similarly, the tuition fees for some study programs in Qubec, in particularadministration, are significantly lower than in Ontario.

Consequently, tuition fees and exemptions which have a limited impact on thenumber of graduates who remain in Qubecwill be reviewed.

TABLE A.21

Cost of education to the government for foreign studentsand Canadian students from outside Qubec2011-2012(millions of dollars)

Revenue

Total(1)funding(1)

Revenue before(2)

exemptions(2) Exemptions Net revenueNet public

cost

Foreign 360 297 121 176 184

Canadian outside

Qubec 212 90 11 78 134TOTAL 573 387 132 254 318

Note: The figures have been rounded off, so they may not add up to the total indicated(1) Includes government funding and tuition fees paid by foreign students and Canadian students from other

provinces.(2) Includes tuition fees, the flat amounts paid by foreign students and Canadian students from other provinces, and

the flat amounts that would have been paid had exemptions not applied.Source: Calculations of the Ministre des Finances et de lconomie du Qubec based on data from the Ministre de

lEnseignement suprieur, de la Recherche, de la Science et de la Technologie.

6 Exemptions are granted primarily to doctoral students, students enrolled in French language orFrench literature course, and medicine residents.

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Savings in the area of university funding

In the coming months, the government will review the fees payable by foreignstudents with a view to striking a better balance between the latters contributionand that of the government.

While taking into consideration foreign students capacity to pay, the sums savedwill go toward university funding.

The government is looking at various options to enable savings of approximately$60 million annually. Even so, the cost of education for foreign students will still beamong the lowest in North America.

Necessary objectives of a fee policyfor students from outside Qubec

Public funding of foreign students education must be based on taxpayers capacity to

pay and the outcome in relation to the following five objectives:

support international immigration;

promote research and its dissemination;

spread language and culture;

foster international and interprovincial exchange and cooperation;

support the supply of health services.

Breakdown of the $318-million public cost of education,by objective2011-2012

Source: Calculations of the Ministre des Finances et de lconomie du Qubec based on data from theministre de lEnseignement suprieur, de la Recherche, de la Science et de la Technologie.

Spread languageand culture

3% ($10 million)Supoprt the

supply of healthservices

4% ($11 million)

Supportinternational-immigration

12% ($38 million)

Promote research andits dissemination

(master's and doctorates)47% ($150 million)

Foster internationaland interprovincial

corporation34% ($109 million)

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APPENDIX 1: FINANCIAL FRAMEWORK BY SECTOR

The financial framework by sector supplements the frameworks on pages A.26 andA.27. It presents revenue and expenditure attributable to the general fund andother categories of entities of the governments reporting entity.

TABLE A.23

Consolidated financial statement by sector from 2013-2014 to 2018-2019(millions of dollars)

2013-2014-

2014-2015-

2015-2016-

2016-2017-

2017-2018-

2018-2019-

RevenueGeneral fund 69 817 71 583 74 621 77 071 79 465 81 823

Special funds 9 923 10 476 10 722 11 188 11 457 11 807


Non-budget-funded bodies 19 481 20 253 21 694 22 197 23 100 23 972Health and social services andeducation networks 38 593 39 291 39 824 40 429 41 672 43 114Specified purpose accounts 1 077 1 161 958 958 958 958

Tax-funded expenditure(1) 6 293 6 488 6 548 6 681 6 811 6 888

Consolidation adjustments(2) 53 146 54 295 55 878 57 076 59 046 60 955

Consolidated revenue 93 110 96 253 100 131 103 789 107 352 110 964ExpenditureGeneral fund 63 825 65 132 66 442 67 802 70 033 72 226

Special funds 8 495 8 702 8 708 8 867 8 821 9 171Non-budget-funded bodies 18 285 19 033 20 566 21 131 22 058 22 929Health and social services andeducation networks 37 759 38 415 38 795 39 156 40 204 41 295

Specified purpose accounts 1 077 1 161 958 958 958 958

Tax-funded expenditure(1) 6 293 6 488 6 548 6 681 6 811 6 888

Consolidation adjustments(2) 52 091 53 189 54 536 55 547 57 309 59 211

Consolidated expenditureexcluding debt service 83 643 85 742 87 481 89 048 91 576 94 256Debt service

General fund 8 510 8 601 8 685 8 971 9 107 9 285

Consolidated entities(3) 2 260 2 364 2 653 3 029 3 334 3 666

Consolidated debt service 10 770 10 965 11 338 12 000 12 441 12 951Consolidated expenditure 94 413 96 707 98 819 101 048 104 017 107 207Contingency reserves 125 200 400 400 400


SURPLUS (DEFICIT) 1 428 454 1 642 2 341 2 935 3 357

BALAN

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Budget: Plan for 2014/15